Who's to blame for carbon credits manipulation?

As published in the Financial Times, May 17th 2024

It is tempting to blame big bad oil companies for emissions scandals, with critical headlines like “Shell sold millions of ‘phantom’ carbon credits” (Report, May 6). But if your government offered to let you magically double your money from an investment that would “have a positive impact”, would you take them up on it? I would. If you were the government and this promise cost you nothing, would you make it? I’d probably do that too.

Is Shell really to blame for playing its best hand in the game for which the government sets the rules?

I thought perhaps companies that bought these carbon credits were also culpable. They must have known they were double-counted. But I think the fault is squarely with Canada’s Alberta provincial government. It is the government’s role to set the rules for businesses to follow, like correcting for externalities that are not priced into conventional measures of profit (eg environmental damage) or ensuring the market functions fairly without abusing power. Alberta’s aims were noble, but it seems they were trying to cut environmental damage in a way that reduces pressure on their budget from direct subsidy payments. Someone else is implicitly footing the bill.

At best, inflating the number of carbon credits that a company is allowed to sell sows confusion and doubt in the carbon credit market, making companies and people less likely to buy into its benefits. At worst, this carbon credits manipulation allows companies to get away with not reducing their emissions at all.

We can’t afford for either to happen if we genuinely care about reducing carbon emissions, least of all at the hands of our own governments.